Storing your cryptocurrency on a wallet
Wallets are an essential factor of owning and investing in cryptocurrencies of any sort. Wallets for digital currencies are very similar to wallets for your hard, in-hand currencies, like dollars or euros; just a digitized version of your bank account. They are used to buy and store your crypto, and send your crypto to others.
Using exchanges is not always equivalent to storing your cryptocurrencies in a wallet. Keeping your money on an exchange can cause great vulnerabilities to your holdings. This is because exchanges are always online, and you do not own the keys when on an exchange. Exchanges are the easiest to hack, and often are. They can also crash, and leave you in a difficult position with price fluctuations, or cancel your account and seize your funds, a quality that wallets do not have. Some exchanges, like Coinbase, also function as digital wallets.
If you are holding onto your crypto for longer periods, you definitely do not want to hold them in certain wallets that are more vulnerable to attacks. These would be hot wallets, and online web wallets or mobile wallets. Hot wallets are ones that are easily connected to the internet, and therefore accessible through the internet anywhere (although, they are not always connected to the internet). Hot storage wallets are much more susceptible to attacks and hackers because of this and the wallet being stored somewhere online. Cold storage wallets, which are not connected to the internet, would be better for the purpose of storing cryptocurrencies for long term purposes. The types of wallets you will need will vary based on what you planned to do with your cryptocurrencies, like holding long-term, or trading more frequently. (You can read more about hot storage and cold storage wallets below.)
Wallets for cryptocurrencies can come in different forms, with different levels of security and pros and cons for using them. The main two are hardware and software wallets, and also the variations of hot storage or cold storage, but there are other kinds as well that typically fall within one of these categories.
Below we explain different types of wallets, so you can grow an understanding and determine which one will be the best for you! You can also visit our pages for hardware wallets, software wallets, and online web wallet interfaces and generators for more information on those types specifically. We will be publishing various types of wallet reviews in the coming future!
Types of Wallets
There are many different types of wallets, and the one that will best suit your needs depends on what you need from a wallet and the purpose of your cryptocurrency holdings.
Each wallet type has different pros and cons. You should weigh the risks of each type depending on what you need from it (i.e. security, easy access, long-term holding, etc.)
Watch our video on different wallet types for a brief overview, and then read more in-depth below. Our hardware, software, and web interface pages will also have more detailed information about each, and reviews of specific wallets will be added over time!
Cold wallets & hot wallets
To understand the different types of wallets, you must understand the difference between cold storage and hot wallets.
Hot wallets: like cash in your pocket
Cold storage wallets: like a savings account… harder to access, but more secure
As touched on above, hot wallets are wallets that easily plug into the internet and are accessible through a web portal. They are considered ‘hot’ because of the greater ability for activity and accessibility. This creates an easy and quick to use environment, which is better for frequent transactions, trading, and frequent access. Although, this can be hazardous because they are more susceptible to hacks because they are often online (they do not always have to be online). Hot wallets are stored online and can be hacked easier than cold storage wallets.
Cold wallets are the more secure of the two. Cold storage wallets are held offline, which makes them much harder to hack or steal because they are not always accessible. These types of wallets are best for cryptocurrency that you are not using frequently, you are sitting on for longer-periods of time, or hold a lot of coins. If you have a lot of crypto, you want your tokens in a cold storage wallet. It is much more secure, and although it is harder to access for trading or buying and selling, it ensures your security and prevents loss or theft of your funds.
Below are three different types of wallets which we will provide a brief description of here. Click on the link for each for more information and reviews of specific wallet types.
1. Hardware wallets
Hardware wallets are devices that serve as wallets for various cryptocurrencies. These wallets are typically cold storage wallets (which means they are offline). Hardware wallets are typically regarded as the most secure form of storing your cryptocurrency, while remaining somewhat easily accessible. Visit our Essential Hardware Wallet Guide for more info on hardware wallets!
- Some hardware wallet devices include: Ledger Nano-S, KeepKey, Trezor, and Bitbox
2. Software wallets
Software wallets can come in a few different types (see below). These are wallets that are typically ‘hot’ and are frequently connected to the internet. These wallets can be on your computer, laptop, or phone, and provide ease-of-access to your tokens. You download the software client and then create a wallet. Visit our Essential Software Wallet Guide for more info on software wallets. Below are the three types of software wallets there are:
- Desktop wallets: For laptops and computers; where the software is installed on your device. You can use a lot of these wallets without being connected to the internet.
- Mobile wallets: Wallets for mobile devices (i.e. cellphones); you download an application for your device. These have pretty decent security, and have easy functionality by using QR codes, allowing for quick transactions.
- Online web wallets: Online web wallets are wallets you use online, and need an internet connection for. A third party allows you to use their software through the cloud. These are sometimes referred to as “cloud wallets.”
- Bitcoin Clients: Bitcoin clients were the first wallets to be used, and Bitcoin client wallets were what was used for the very first transactions on the blockchain network. By having one of these clients on your computer, you form the core of the network. These core clients of blockchain systems allow users to directly interact with the network and be apart of the state of it. You can also see the full history of the blockchain with this client. Running a bitcoin client is like running a fully-validating node; this is the counter to other software wallets listed above that do not run nodes, but rather rely on third-party services to provide software and run nodes for the user. Satoshi Nakamoto used a Bitcoin client wallet. Below are some Bitcoin clients.
3. Physical wallets
Paper wallets are a wallet form which can hold crypto completely hard copy and undigitized. These are ultimate cold storage wallets for cryptocurrencies. You pretty much just print out your generated paper wallet (pretty much printing your public and private keys), and lock it up in a safe or safety deposit box.
Remember that paper is easily damaged… Keep multiple paper copies of your printed paper wallet in different places…
There are some sites you can use to generate paper wallets, which you can see below:
- https://www.bitaddress.org/ (This site is good if you current wallet service does not have the option to convert to a paper wallet. With BitAddress you can just add your public-private key combo from your existing wallet. Make sure you are using the correct, secured BitAddress site.)
- Bitcoin Paper Wallet (This is a good option if you like pretty, custom paper designs)
Web interfaces for generating wallets
There are certain web interfaces, like MyEtherWallet and Waves, that allow you to generate a wallet for your cryptocurrencies. These services typically allow you to create a wallet, backup your keys, and send your tokens to them for storage online or offline. Wallet generators, like MyEtherWallet, can be compatible with other wallets (like hardware devices or software clients). Sometimes these services are apart of a greater platform, and by creating a wallet, you are doing so to be able to use their platform for launching, distributing, and trading tokens or creating smart contracts, etc., like Waves.
Some web interfaces for generating wallets are:
- MyEtherWallet – or MEW- (Ether and ERC20 tokens)
- Check out our MEW demo and review here!
- Waves (Various tokens and good for trading; a platform that allows you to create your own tokens, like for crowdfunding)
- WalletGenerator.net (various tokens; only for paper wallets)
- NEO (only for generating paper wallets)
Check out our MyEtherWallet demo and review!
To learn about HD Wallets, see our Ask an Expert on them.
To read more about cryptocurrencies, visit our WTF is Cryptocurrency page here. If you are curious about different tokens and projects, our popular token project page might peak your interest! Learn more about blockchain technology with our What the FAQ page, our page on differentiating blockchain and cryptocurrencies, and our page on decentralization!